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Wednesday, March 09, 2005 | San Diego’s controversial inclusionary housing policies could become more restrictive as elected officials strive to provide affordable housing for low-income families.

On Wednesday, San Diego City Council’s Land Use and Housing Committee will consider eliminating an option that allows developers to pay in-lieu fees rather than provide affordable housing units in rental apartments that are converted to for-sale condominiums. Such a move could open the door to requiring the construction of affordable housing units in new developments as well.

Eliminating the in-lieu fee option would ensure that some of the converted rental units remain relatively affordable and do not shift quickly to higher income portions of the market, according to an analysis in the city manager’s report, “Workshop on Residential Condominium Conversion Regulations.”

“Justification for this policy … is that, unlike new construction, conversions involve existing dwellings and displace existing residents from their homes,” the report concludes.

Increase in condo conversions

Although a condo conversion is currently the most affordable option available to first-time home buyers, city planners fear that the rapid pace of conversions is reducing the stock of rental units and making the housing affordability crisis worse, not better. Dumping the in-lieu fee option for the conversions would be easier and more practical than requiring developers of new housing to provide affordable units on site, city planners say.

There has been a rapid increase in applications for condominium conversions in the past five years, according to the city manager’s report. Between 1989 and 1998, no conversion applications were submitted in San Diego. But from 1999 to January 2004, applications to convert 2,275 rental units were submitted, and since February 2004, applications to convert an additional 6,364 units have been submitted.

This is primarily because home prices, for the past four years, have been rising 15 percent to 20 percent a year, while rental rates have been rising only 5 percent to 6 percent a year. “Converting housing units from rental to for-sale status has become increasingly profitable and popular,” the report states.

New SANDAG rules

Under the city’s current inclusionary zoning ordinances, adopted in June 2003, developers are allowed to pay in-lieu fees to the city’s Housing Trust Fund rather than actually build affordable housing units. Affordable units are those offered at a rental rate or sales price affordable to households with incomes up to 150 percent of the area median income. The U.S. Department of Housing and Urban Development pegged the area median income for a family of four at $63,400.

Frye in favor of inclusionary zoning

“We need to start somewhere,” Frye said of eliminating the option for condo conversions. “The fees are not effective for providing affordable housing.”

Most developers, who consider inclusionary zoning policies “social engineering,” opt to pay the in-lieu fees rather than build the units, which the building industry says cuts into their profits and drives up the cost of housing for those who can afford to pay market rate.

Frye and Atkins chided the building industry and business leaders for, on one hand, demanding that the city do something to provide affordable housing, then opposing inclusionary zoning.

That apparent contradiction is due, in part, because inclusionary zoning addresses the term “affordable” as defined by HUD and has become synonymous with “subsidized” housing. The building industry and business interests refer to “affordable” in broader terms, including households with moderate incomes that are not eligible for government subsidies. They prefer the term “workforce housing” for homes that are “affordably priced.”

Building industry opposed to inclusionary zoning

Tryon said city officials must address the need for workforce housing for “gainfully employed San Diegans who are struggling either to make rent or to buy housing in this market place.”

But according to the San Diego Housing Commission and the San Diego Housing Federation, there are plenty of “gainfully employed” taxpayers in San Diego who are also eligible for subsidized housing, including executive assistants, nurses, teachers and police officers. San Diego City Schools, for instance, is considering building subsidized housing for teachers at the low end of the pay scale.

Should condo conversions be limited?

In addition, the committee will discuss other aspects of condo conversions, including relocation assistance for displaced tenants, as well as changes in building codes and parking requirements for older units that do not comply with current standards.

Larry M. Edwards has been covering San Diego business news since 1984.

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